More than two years have passed since the floods of 2022, but the affected communities still remain helpless, and progress is quite muted. Of the $11 billion funds pledged in Geneva for rehabilitation, only $2.8bn had been disbursed by April. What’s worse is that the frequency of such disasters is only going to increase as Pakistan is the fifth most vulnerable country to climate crises in the world.
Yet, in terms of the preparedness and capacity to withstand climate-related challenges, we rank 150th out of 185 countries, as per the Notre Dame Global Adaptation Initiative Index. Readying ourselves for what’s to come will not only require will but significant monetary resources.
According to the 2021 Nationally Determined Contributions (NDC), Pakistan set a target of halving overall emissions by 2030, conditional on receiving international financial support for 35 per cent of the $101bn required for the energy transition alone.
So far, the country has primarily focused on multilateral financial institutions and bilateral partners in mobilising funds. Important as they may be, there is an urgent need to cast a wider net, particularly in the private sector, where the climate is a somewhat hot space these days.
Pakistan could lose out on global climate financing if it continues to only look towards bilateral partners and financial institutions, ignoring the private sector
According to Netzero Insights, global climate tech funding is expected to clock in at $86.6bn in 2024, beating last year’s total of $83bn. This is in stark contrast to the overall venture landscape, where investment has continued to slip and is now back to pre-pandemic levels.
However, Pakistan seems to be missing out on this global green gold rush. While the country has managed to secure $10.1bn in climate finance commitments from multilateral development banks between 2015 and 2022, the private sector remains largely on the sidelines. It’s as if we’re trying to fight a forest fire with a garden hose while ignoring the fleet of water bombers circling overhead.
Take venture capital, for instance. In a country where startups have raised $858.2 million between 2019 and 2023, cleantech ventures have scraped together a mere $15.04m across 16 deals. That’s less than 2pc of the total funding pie — crumbs, really, when you consider the existential threat climate change poses to Pakistan.
Similarly, local banking is almost entirely uninterested in this space. According to State Bank data, total outstanding financing to clean sectors stood at just Rs97.1bn as of September, accounting for a mere 1.3pc of the overall private business loans. The amount is the lowest in over five years and down 40pc from June 2019 levels. Of course, this is a more systemic problem, best reflected by the fact that the industry’s investments-to-deposits ratio had crossed 100pc in August.
On the other hand, the government seems to be somewhat proactive, at least on paper. The FY25 budget earmarked Rs46.6bn for adaptation, Rs212.9bn for mitigation and Rs18.9bn for supporting areas under the climate head. But then, there was also Rs140bn for women’s employment and economic opportunity, so the accounting behind these numbers has to be taken with a pinch of salt.
Total outstanding financing to clean sectors stood at just Rs97.1bn as of September, accounting for a mere 1.3pc of the overall private business loans
What makes tracking progress more difficult is the lack of a standardised taxonomy for cleantech verticals. At the moment, everything is quite arbitrary, with a fair degree of greenwashing — both from the seekers and suppliers of capital amidst pressure from international institutions.
Despite such a limited funding environment, pockets of hope and innovation are emerging as new companies enter the cleantech space. This is probably most visible in the electric vehicles industry, which originally started with the import of high-end cars.
However, a bunch of players are now trying to assemble two-wheelers and capture the mass market. According to the Engineering Development Board, as many as 35 entities had received a license for this business. More importantly, at least 14 of them are startups, as per the Pakistan Private Sector Energy Project’s Cleantech Ecosystem report.
Admittedly, the progress is still slow as very few players have started commercial operations yet. For those who have, their prices are still extremely high, at around Rs400,000, compared to the available internal combustion engine options. As a result, demand for electric vehicles is already low due to high upfront costs, which are made worse by the absence of consumer financing avenues.
Luckily, a number of new initiatives have popped up lately, trying to address this problem. Not too long ago, Acumen Pakistan set up an $80m climate action fund, which can entice other investors, both from the private sector and social enterprises, to actively explore the sector.
Moreover, entrepreneurial support organisations are also taking more interest, as evidenced by the launch of dedicated incubator and accelerator programs. However, the pace is still rather slow and needs to accelerate immediately if the country has any plans to navigate through the upcoming crisis.
The writer is the co-founder of Data Darbar
Published in Dawn, The Business and Finance Weekly, October 21st, 2024
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